When it comes to keeping more of what you earn, understanding your tax responsibilities – and how to minimise them – is a great place to start. In simple terms, your tax liability is the total amount of tax you owe HMRC. But with a few smart moves, you can reduce that liability legally and efficiently.
Whether you’re an employee, self-employed, a landlord, or a company owner, here’s how to tackle your tax bill with confidence.
What is tax liability?
Tax liability is the amount of tax you owe on income, profits, gains, or assets. Your liability depends on your income level, how you earn it (employment, business, property, etc.), and what deductions or reliefs you’re entitled to. Reducing your tax liability means keeping more of your hard-earned income and it’s entirely possible with the right strategies.
Maximising personal allowance
Every UK taxpayer is entitled to a personal allowance – the amount of income you can earn tax-free each year (currently £12,570). But there are ways to increase your personal allowance:
- If you’re married or in a civil partnership, you may be eligible for the Marriage Allowance, which allows you to transfer £1,260 of unused allowance to your partner.
- If your income drops below the threshold, make sure you reclaim any overpaid tax at the end of the year.
This simple allowance is your first step in reducing tax liability, and maximising it could save you hundreds annually.
Pension contributions & tax relief
Contributing to your pension is not only a way to build a strong retirement fund, – it’s also one of the most effective ways to lower your tax bill.
- Pension tax relief means that for every £100 you contribute, basic-rate taxpayers pay only £80 (and higher-rate taxpayers can claim back even more).
- If your employer offers it, a salary sacrifice pension scheme allows you to exchange part of your salary for additional pension contributions – reducing your taxable income.
- You can maximise pension contributions up to £60,000 a year (as of 2024–25) and still get tax relief – a smart long-term savings move.
Related: Landlords warned against tax duty tax avoidance schemes
Tax credits and deductions
Make sure you’re claiming everything you’re entitled to:
- Tax credits like Working Tax Credit or Child Tax Credit (now being replaced by Universal Credit) could reduce your liability or boost your take-home income.
- Tax deductions for employees might include professional subscriptions, uniforms, tools, or even working-from-home expenses.
A quick check-in with HMRC or an accountant could uncover hidden opportunities to claim.
Tax-efficient investments
Investing wisely can help your money grow – without handing over too much to the taxman.
- Tax-free investments like ISAs allow you to save or invest up to £20,000 each year with no income or capital gains tax.
- Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS) offer generous tax breaks for those willing to take on higher-risk investments.
- Use a mix of options to build tax-efficient investment strategies that suit your risk tolerance and long-term goals.
Self-employment tax deductions
If you’re self-employed, you’ve got more flexibility – and more opportunities to save on tax.
- Self-employed tax deductions can include home office expenses, equipment, marketing, travel, and insurance.
- Track everything carefully and file accurate returns to avoid overpaying.
- Consider a business bank account and accounting software to stay organised and compliant.
Tax planning for self-employed people is all about preparation – the better your records, the bigger the potential savings.
Inheritance tax planning
Planning for the future? Inheritance Tax (IHT) can take a big bite out of your estate, but there are ways you can reduce it:
- Set up trusts to control how your assets are passed on, potentially lowering your IHT bill.
- Make regular gifts to family or friends – you can give away up to £3,000 a year tax-free (and more in some cases).
- Explore inheritance tax strategies with a financial planner to minimise the impact on your loved ones.
Reducing Inheritance Tax starts with forward-thinking, and the sooner you plan, the more options you have.
Charitable donations
Donating to charity can help others – and help your finances too.
- When you donate through Gift Aid, the charity can reclaim 25p on every £1 you give.
- Higher-rate taxpayers can claim extra tax relief for charitable donations through their Self-Assessment.
- Regular donations and large one-off gifts can both offer tax benefits of charitable giving, so keep track of receipts and claim accordingly.
Corporation Tax strategies
Running a limited company? Smart corporation tax planning can save your business a lot.
- Deduct Corporation Tax deductions such as staff costs, rent, travel, and professional services.
- Investing in assets, training, or R&D can also qualify for additional relief.
- Structuring director income as a combination of salary and dividends may also help in reducing Corporation Tax effectively.
VAT and tax schemes
If you’re running a small business, VAT registration becomes mandatory if your turnover hits £90,000 – but even before that, joining voluntarily might benefit you.
- The Flat Rate VAT Scheme simplifies reporting and can sometimes reduce your payments.
- Explore other VAT schemes for small businesses such as the Annual Accounting Scheme or the Cash Accounting Scheme for easier cash flow management.
Choosing the right VAT scheme can lead to less paperwork and more savings.
Expert help for your property journey
Reducing your tax liability is all about being proactive, informed, and organised. From understanding your personal allowance and making the most of pension contributions, to exploring tax-efficient investments and self-employed deductions, there are plenty of ways to make your money work harder.
For expert help with selling, letting, or managing your property, get in touch with your local Whitegates branch – we’re here to make the process simple and stress-free.
*Information is subject to change; please consult a qualified tax adviser for personalised advice.
